Commodities Recap For The Week Of January 24, 2020

by | Jan 24, 2020 | Hotline Blog

  • Coronavirus causes risk-off action in markets
  • Oil and natural gas plunge- Oil heads for the bottom of its trading range, while natural gas trades at the lowest price in January since 1999
  • Gold edges higher, palladium continues its explosive price action
  • Agricultural commodities decline

 

The story of this week:

 

China Goes from One Problem To The Next

 

In 2018 and 2019, the escalating trade war between the United States and China weighed heavily on Chinese economic growth. On January 15, the signing of the “phase one” trade deal took some pressure off of China’s economy. Meanwhile, the Asian nation continues to face problems in Hong Kong, where anti-government protests threaten stability and peace in the world’s most populous country. Most recently, an outbreak of the Coronavirus has created another problem for China, and perhaps the world. While the CDC has yet to declare the spreading virus a pandemic, it will likely reach that stage as the death toll in China is rising, and new cases pop up around the globe.

When the Chinese economy catches a cold, the rest of the world tends to come down with financial flu. This week, markets across all asset classes moved lower over fears of the Coronavirus.

Source: CQG

US stocks moved lower on the back of the outbreak in China with the E-Mini S&P 500 futures contract putting in a bearish reversal trading pattern on Friday, January 24.

Source: CQG

The price of crude oil plunged since the January 8 high at $65.40 on the nearby March futures contract. On January 24, the price fell to a low under the $54 per barrel level as the energy commodity heads for the bottom end of its trading range at just above the $50 level. Rising US production and inventories have weighed on the price of the oil commodity, and the situation in the Middle East between the US and Iran has calmed. The potential for a global pandemic coming from China has added to the bearish sentiment in the energy commodity that powers the world.

Source: CQG

China is the demand side of the fundamental equation in many commodities. Copper tends to be a barometer of the health and wellbeing of the Chinese economy. The chart shows that the red metal futures fell from $2.8860 on January 16 to a low of $2.6775 on Friday, January. March copper futures settled the week not far above the low at $2.6840 per pound. At the same time, a sudden rise in LME inventories weighed on the price of copper.

The stock market may have been looking for a reason to correct, but the overall risk-off behavior will mean that all eyes will be on China and the spread of the coronavirus over the coming days and weeks.

Meanwhile, with fear and uncertainty rising, the price of gold rose to over the $1570 level as investors and traders returned to the safety of the yellow metal. Keep those stops tight during the coming week. Markets are likely to be highly volatile based on the price action and reaction to what could become a global health crisis.

China has not seemed to get a break since 2018. Coronavirus is another issue that is causing a case of global economic flu.

 

 

 

Highlights in commodities:

 

  • February gold rises 0.74% and settled at $1571.90 per ounce, up only $11.60 from last week
  • March silver rises 0.22% on the week as the precious metal settled at $18.113 per ounce on January 24
  • Platinum posts a 1.39% loss on the week. April platinum was at a $561.30 per ounce discount to February gold futures, which widened since last week
  • March palladium exploded 4.11% higher for the week and settled at $2316.30 per ounce after trading to a new record peak of $2427
  • March copper declined 5.68% as the red metal slipped below the $2.70 per pound last
  • February iron ore futures moved 4.07% lower on the week
  • The BDI plunged 24.51% since January 17 to the 576 level on concerns over the Chinese economy
  • February Rotterdam coal rose 3.33% since last week
  • March lumber moved 0.88% lower since January 17 as the price was at the $426.20 per 1,000 board feet level
  • March NYMEX crude oil fell 7.90% lower since January 17
  • March Brent crude oil fell 6.46% since the previous report as Brent outperformed NYMEX crude oil on the back of tensions in the Middle East
  • The premium for Brent over WTI in March closes Friday at the $6.47 level up 20 cents since last week
  • March gasoline moved 8.17% lower while March heating oil futures fell 7.18% over the past week
  • The gasoline crack spread in March was 10.17% lower while the March heating oil crack moved 4.91% lower since January 17
  • Natural gas fell 5.49% on February futures closing the week at $1.893 per MMBtu after trading to a low of $1.83, the lowest price in January in this century. The EIA reported a withdrawal of 92 bcf from storage on Thursday for the week ending on January 17
  • March ethanol fell 2.46% on the week
  • March soybeans declined 2.98% since last week
  • March corn moved 0.51% lower on the week
  • CBOT March wheat rose 0.53% since last week. March KCBT wheat trading at an 87.50 cents discount under March CBOT wheat down 11.25 cents since January 17. The discount moved away from the historical norm since last week
  • March sugar fell 0.42% since January 17 after moving to a new high at 14.90 cents per pound
  • March coffee continued to correct and fell 1.78% since last week
  • March cocoa fell 2.29% since January 17 after trading at a new medium-term high of $2859 per ton during the week
  • March cotton moved 2.60% lower since last week as the fiber futures were at the 69.40 cents per pound level
  • March FCOJ futures rose 0.74% since the previous report to just under 96 cents per pound level
  • February live cattle fell 1.19% since last week
  • March feeder cattle were 3.67% lower since January 17
  • February lean hog futures fell 0.66% over the past week
  • The March dollar index futures contract rose 0.30% on the week
  • March Long-Bond futures trading at 160-16 up 2-30 for the week
  • The Dow Jones Industrial Average closes at 28,990 on Friday, January 24, down 358 points from January 17. The S&P 500 fell 1.03% since last week. The VIX was trading at around 14.56 on Friday up 2.46 on the week on the back of the Coronavirus outbreak
  • Bitcoin was trading at $8,505.74 on Friday down $445.31 or 4.97% since January 17
  • Ethereum was trading at $163.75 on Friday, down 7.28% since the last report

 

Price Changes for the week:

DBC closes at $15.11 per share, down 66 cents since January 17

Source: Barchart

 

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.43 billion and trades an average daily volume of 1,154,396 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. The average volume fell over the past week as the price of the ETF was posted a loss.

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal.  This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.